Dollar gains after factory, Chicago-area data

Euro weighed by Greek bailout reports after German cabinet vote

By

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch) — The U.S. dollar turned up against the euro on Wednesday after reports on national factory orders for July and Chicago-area business sentiment came in a little better than analysts had predicted.

The greenback had been lower earlier in the wake of a slightly weaker-than-expected report on private U.S. payrolls growth.

The dollar index
DXY, +0.48%
, which tracks the U.S. currency against six major currencies, turned up to 74.162, from a low of 73.833 and versus 73.968 in late North American trading on Tuesday.

That “raises the question for a more costly bailout,” said Dean Popplewell, chief currency strategist at Oanda Corp.

The bigger uncertainty for Europe is what will or won’t be done to help the economies that need assistance, said Michael Lee, senior portfolio manager of Wells Fargo Advantage International Bond Fund
ESICX, -0.51%
.

“Or maybe more importantly, getting the help that the market believes will help those economies, so yields can come down and those economies will again have access to the bond markets to finance themselves,” Lee said.

Popplewell also noted trading volume is about 70% of normal and that traders “do not want to be baby sitting any questionable or toxic positions” into a holiday weekend in the U.S.

The dollar had taken on slight pressure after ADP reported U.S. companies hired 91,000 workers in August, a little fewer than economists estimated. But the number wasn’t disastrous, and eased some worries about Friday’s more important, broader nonfarm payrolls report from the Labor Department. See story on ADP jobs report.

“ADP has been a poor predictor of nonfarm payrolls but everyone was relieved to see that there was not a huge change in private sector job growth,” said Kathy Lien, director of currency research for GFT. “If ADP fell to 50,000, we would have probably seen the dollar sell off aggressively. But the number wasn’t bad.”

Along with another report earlier on employment, the data doesn’t “suggest the need for any position adjustments ahead of Friday’s nonfarm payrolls report,” Lien said.

Fed redux

The minutes from the Federal Reserve’s latest policy meeting, released Tuesday, showed some dissent on whether to take more action to help the U.S. economy. Strategists said the minutes show the bar for further action by the Fed continues to decline, to the potential detriment of the dollar. Read more on dollar, Fed minutes.

“The main new piece of information in the minutes of the August FOMC meeting was that a few members stood ready to do more,” said strategists at Barclays Capital.

It also helped boost equities and other “risky” assets, although risk-related correlations may be deteriorating, analysts said.

The message from the minutes was that “mad money is here to stay whether one or two FOMC members dissent or not,” said Kit Juckes, head of foreign exchange at Societe Generale. “This helped ‘risk’ rebound, though it should be said that if the dollar benefits less and less from safe-haven status, risky assets are getting less and less of a lift from the panacea of cheap money in each crisis.”

The result, he said in a note, is “a nervous, slightly directionless market.”

The euro was buoyed in earlier activity after German Chancellor Angela Merkel’s Cabinet approved draft legislation to revamp the euro-zone bailout fund, setting the stage for a crucial parliamentary vote on Sept. 29. Read more on Merkel and the bailout fund.

For the month, the dollar has bounced a lot against the euro, but the single currency lost just 0.2% in the end. For the year, the euro has returned 7.3%.

The dollar index rose 0.5% for August and has fallen 6.2% so far in 2011.

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